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Remedies for Price Overcharges: The Deadweight Loss of Coupons and Discounts

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  • A. Mitchell Polinsky

    (Stanford Law School)

  • Daniel Rubinfeld

    (University of California, Berkeley)

Abstract

This article evaluates two different remedies for consumers who have been injured by a price overcharge on the sale of a good. Under a coupon remedy, injured consumers are awarded coupons that can be used for a limited period of time to purchase the good at a price below that which prevails after the overcharge has been eliminated, that is, below the competitive price. Under a discount remedy, any consumer, without proof of injury, may purchase the good for a limited period of time at a price that is set below the competitive price. Both remedies generally cause consumers to buy an excessive amount of the good during the remedy period. Under the coupon remedy only a subset of consumers are affected in this way (those holding a relatively high number of coupons), while under the discount remedy all consumers are affected. We show nonetheless that the resulting deadweight loss could be lower under the discount remedy. We also consider how the deadweight loss changes when the length of the remedy period is increased.

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Paper provided by American Law & Economics Association in its series American Law & Economics Association Annual Meetings with number 1060.

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Handle: RePEc:bep:alecam:1060

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  1. Borenstein, Severin, 1996. "Settling for Coupons: Discount Contracts as Compensation and Punishment in Antitrust Lawsuits," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 379-404, October.
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Cited by:
  1. A. Mitchell Polinsky & Daniel L. Rubinfeld, 2005. "A Damage-Revelation Rationale for Coupon Remedies," Discussion Papers, Stanford Institute for Economic Policy Research 04-009, Stanford Institute for Economic Policy Research.

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